Tax Rip-Offs And A Remedy For Reckless Central Banking

One would have hoped that financial rip-offs committed by medieval princes
would have been permanently shelved when liberal enlightenment ended the divine
right of kings.

Recent imperious announcements by Messrs. Greenspan and Bernanke to use the "printing
press" to inflate anything they can should be considered startling only in
the resort to honesty. Euphemisms for currency depreciations started with the
original promoters of the Fed and the tout was that a "flexible" currency would
prevent serious financial contractions.

Regrettably, since the doors of the Fed were opened in 1914 there have been
many financial crises and the dollar has lost 95% of its purchasing power.
Particularly ironical is that since originally touted as an agent of stability,
financial volatility has increased and has continued to the remarkable violence
in the sub-prime sector, for example. This is a subset of the lengthy experiment
in artificial "investments" otherwise known as derivatives.

On the very big picture, long-dated rates in the senior currency have ranged
from the low of 1.85% in 1941 to the high of 15% in 1981. During the 200 years
prior to the chronic attempt to artificially lower interest rates, the range
was 2.25% to 6.00%.

Obviously, imposition of ambitious policymaking has introduced extraordinary
volatility, and in a separate article we have pointed out that while the commodity
and financial markets have suffered many severe contractions, the concept and
practices of central banking have never been corrected.

Nineteenth Century liberals, so rational and principled in their views, could
not have imagined the greedy craft developed by many modern governments in
confiscating private wealth earned by productively working citizens. Are we
seeing medieval financial tyranny replicated by today's proponents of the divine
right of bureaucrats? A look at history provides perspective, and, although
outrageous when imposed, the passage of time makes early examples of princely
finance somewhat amusing:

The colourful Richard I (1189-1199) sold property to finance his joining the
crusade of Peter the Hermit. Upon returning, he took it back on the pretense
that originally he had no right to sell it.

The infamous King John (prompted the Magna Carta in 1215) introduced the clever
plan of imprisoning and ransoming the mistresses of priests, confident that
the funds he could not obtain from their greed he would from their lust.

Edward I (1272-1307) confiscated money and silver or gold plate from monasteries
and churches, faked a voyage to the Holy Land and, in keeping the money, refused
to go.

Edward IV (1461-1483) was described as the handsomest tax-gatherer in the
country; and when he kissed a widow because she gave him more than he expected,
it is said she doubled the amount in hopes of another kiss.

Henry VII (1485-1509) was fiscally sound and approached wealthy families with
two arguments. If the household was not extravagant in expenditure, then he
attacked what they had saved by thrift; while if they lived extravagantly they
were considered opulent and could afford any exaction. Named after his minister
of finance, the ploy was called "Morton's Fork".

A broader form of wealth confiscation capable of tapping even the poor was
accomplished by currency debasement and extreme examples in ripping off everyone
provoked severe social disorder. No matter what method employed, financial
outrage prompted the evolution of parliament as a necessary means of constraining
fiscal ambitions of the governing classes.

The struggle between individual freedom and authoritarian state proceeded
until the late 1600s when growing commercial wealth and political power in
London began to become influential with its financial common sense. The specific
event that formalized the victory over the ancient status quo was the "Glorious
Revolution" of 1688, which maneuvered the pro-business and Protestant William
of Orange into the British Crown and displaced James II as the last absolutist
king. How refreshing this was is indicated by the oppressive politics of his
and his predecessor, Charles II. Starting with the restoration of the monarchy
with Charles in 1660, both kings were bribed by France to change the culture
of England - consistently in an authoritarian direction. Scornful remarks by
miffed establishment were similar to those directed to the pro-business movement
today.

No matter how imaginative or despotic princely financing was, it can't compare
with the long- running compulsion to spend other people's money by today's
bureaucrats and politicians, virtually unrestrained by the checks and balances
of constitution or mainstream media.

But before expanding this point, consideration should be given to the other
event that formally ended the old world, which was the beginning of modern
finance with the incorporation of the Bank of England in 1694. As history shows,
central banking is fine when disciplined by a convertible currency and, when
not, it becomes a tool of state ambition to confiscate wealth though currency
depreciation. That the dollar has lost 95% of its value exceeds most princely
devaluations and, like those, has been no accident.

Indeed, recent Fed announcements to "print money" could be an attempt to go
for the final 5%. While many outside central banking would consider this as
infinite folly, it is uncertain as to how long this endeavour will maintain
credulity in even academic circles. Regrettably, modern financial agencies
such as the Treasury or Federal Reserve System have become as corruptible as
their medieval counterparts.

Fortunately, history provides some antidotes to governmental abuse of the
productive sector. Short of rebellion, the most effective of course has been
to force government and its financial agencies to be accountable to the taxpayer.
As for those who have wrecked the currency (also a government responsibility),
Dante, in his Inferno, reserves a special place in hell for "false moneyers".

The Anglo-Saxon Chronicles record something equivalent, albeit more temporal:

"1125 A.D. In this year before Christmas King Henry sent from Normandy
to England and gave instructions that all moneyers ... be deprived of their
members ... Bishop Roger of Salisbury commanded them all to assemble at Winchester
by Christmas. When they came hither they were then taken one by one, and
each deprived of the right hand and the testicles below. All this was done
in twelve days between Christmas and Epiphany, and was entirely justified
because they had ruined the whole country by the magnitude of their fraud
which they paid for in full." - The Laud Chronicle (E)

Fortunately, history indicates that the public will eventually figure out
that no matter how beguiling the claims about currency management and taxation
are, the gambit has been mainly to confiscate private savings. They will then
demand the return of sound money and accountable government.

The opinions in this report are solely those of the author.
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